Hewlett-Packard: Splitting up a technology icon to save it

The two firms will be among US’s 500 largest public firms. However, neither will have the standing as one of the most innovative operations in the world that the old HP enjoyed for decades.New York Times | November 02, 2015, 18:30 IST

FILE - The two firms will be among US’s 500 largest public firms. However, neither will have the standing as one of the most innovative operations in the world that the old HP enjoyed for decades. (Photo/Paul Sakuma, File)By Quentin Hardy

When Meg Whitman, Hewlett-Packard's chief executive, was preparing to cleave her company in two, she feared reliving a shoe disaster from early in her career.

Whitman was an executive in charge of the Keds brand at Stride Rite a few decades ago as the company was making a transition to a new "high-tech" warehouse. The transition was bungled, and for nine months the problem could not be fixed. Whitman worried so much about a similar hiccup that during planning meetings for the HP breakup, "Can we ship Keds?" became a sort of shorthand for worrying about bungling.

When HP split in two on Sunday after a year of planning, what is left bears little resemblance to the engineering-driven company founded more than 75 years ago in a garage not far from Stanford University. On one side will be HP, which will largely consist of personal computers and printers. The other, Hewlett Packard Enterprise, or HPE, will sell the computer servers, data storage, networking, software and consulting services that run a modern company. Each company is expected to have annual revenue of about $50 billion and will be among America's 500 largest public companies.

Neither will have the standing as one of the most innovative operations in the world that the old HP enjoyed for decades. But the people who will run the new companies argue that may not be a bad thing. Indeed, HP for years has endured a sort of corporate existential crisis — a company trying to change with the times while trying to hold on to the past and managing to do neither well.

"We're leaving behind a company that was very large, running two businesses that were very different," Whitman said in an interview at her headquarters. "We're creating two new big companies, not bite-sized morsels, with real capabilities to change things."

And Whitman, who will run HPE, made certain throughout the transition that her company would most assuredly still be able to ship computers. "We have to ship products, we have to send invoices, we have to collect money," she said. "HP sells two PCs a second. A server every six seconds. We had to keep selling them."

The change cannot come fast enough for HP, whose stock is off more than 30% since the start of the year. The question is whether Wall Street believes the two companies will benefit from the separation. "Anytime you make a change, you make a claim," said Toni Sacconaghi, an analyst with Sanford C Bernstein. "They say, 'We're on the front edge, everyone will have to catch up to us.' But both new companies aren't that wildly different. They're both growth-challenged."

Of course, quitting history is not simple. HP, the less technically ambitious of the two new companies, will largely occupy the building that used to house HP's famed research and development division.

The offices of William Hewlett and David Packard, kept intact after they left more than 20 years ago, are being sealed off with a separate entrance so that employees of both companies can come by for visits. The garage and a collection of information technology relics are also common property.

More important for the future of both new companies are the plans that Whitman seems to have worked on since she took over at HP in 2011. And the story HPE is taking to corporate customers is HPE itself.

Need to change your business? HPE can show you how, executives say. After all, few companies in the world have gone to greater lengths to change.

Since October 6, 2014, the day Whitman announced the split, a 500-person team inside HP has done more than 300,000 tests of its systems to see if they work right, built 75,000 new ways to interface with its computers and cloned 2,800 applications to use in one company or another.

Translation: HP has learned to do tough automation for big computing systems, and that experience is something it can sell to customers.

Wrenching change is now the norm among the older tech giants. Just in the past few weeks Dell announced a deal to purchase EMC, a maker of data storage equipment and software, for $67 billion. Lexmark, a competitor to HP's printer business, has hired Goldman to explore alternatives to its beleaguered life as a public company. And IBM has reported declining revenue for 14 consecutive quarters. "We have to recognise how much technology has changed and change with that," Whitman said.

“A divorce could reshape the global wealth ranking. If the couple split their fortune equally, it could leave wife MacKenzie with $69 billion, making her world’s richest woman. It could also make Microsoft's Bill Gates the planet’s richest person once again,” reported Bloomberg. Amazon founder Bezos was dating Lauren Sanchez, a 49-year-old ex-news anchor.